What is the correct valuation to determine the 15% threshold of the eligible capital under Article 89(1) of Regulation (EU) No, 575/2013? Are the provisions of Article 4(77) also relevant for this purpose or should it be generally the amortized cost?

Article 89 of Regulation (EU) No. 575/2013 (CRR) should probably limit the taking of qualifying holdings outside the financial sector. Consequently, only the amortized cost can be used for the calculation of the qualifying holding. Otherwise it could have the undesirable effect that only changes in fair value or in the market price can lead to apply a 1250 % risk weight to the amounts in excess of the limits specified in Article 89 although the amortized cost of this qualifying holding are significantly and permanently below the 15 % threshold. As an alternative to applying a 1250 % risk weight the competent authorities may prohibit the institution from having these qualifying holdings. Above all, it must be considered that these conditions can be abolished again at the next valuation date.

According to Article 24(1) of Regulation (EU) No. 575/2013 (CRR), the valuation of assets shall be effected in accordance with the applicable accounting framework.

By way of derogation from Article 24(1) of the CRR, paragraph (2) of the same Article establishes that competent authorities may require that institutions effect the valuation of assets and off-balance sheet items and the determination of own funds in accordance with International Accounting Standards as applicable under Regulation (EC) No 1606/2002. Therefore, the value used for the purposes of Article 89 of the CRR must be the same as that which the entity has used for the purposes of Article 24 of the CRR. 

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.